Earnings continued to dominate the market

BY  | FROM  | 2015-08-03 15:01

Earnings continued to dominate the market, as mostly (but not all) positive earnings came in.  While the growth was not strong, there was growth, which gave hope (and the ability to survive another quarter).  Adding to the quarter is that Q3 forecasts are holding up, which permitted the Wall Street slogan of “tomorrow will always be better” to live on. 

Specifically, three-quarters of earnings have been reported, with 71% beating.  The top line is that sales remain weak, off  3.0% year-over year; the bottom line earnings are also off 3% year-over-year, but they are up 2.6% excluding energy.  Given energy’s poor reports, the forward energy numbers may need to be oiled down.  In economic news, the IMF warned that the prospects for the eurozone were modest, with limited medium-term growth.  The Pending Home Sales Index and the S&P/Case-Shiller Home Index came in lower than expected, but they are still at solid levels. 

The Fed met, and their notes (there was no conference call) show a more positive view of the economy via solid job gains and declining unemployment, but they show concern over inflation.  The bottom line was that the Fed remained on the path to increase interest rates this year—which the market liked.  The Q2 Employment Cost Index came in with a 0.2% gain—a 33-year low, with the low growth casting doubt on wage growth, and therefore the ability of consumers to spend.  In M&A news, Teva Pharmaceutical (TEVA; up 11.6% for the week) said it would buy the generic business of Allergan (AGN; up 7.4% for the week) for USD 40.5 billion, and Teva ended its attempt to purchase Mylan NV (MYL; off 15.1% for the week). 

McGraw Hill Financial (MHFI; off 3.6% for the week), said it would buy SNL Financial for USD 2.2 billion.  For the week, the market continued an earnings-inspired roller coaster ride, as the market posted a broad 1.16% gain after the previous week’s broad 2.21% decline and the prior week’s broad 2.41% gain.  The index closed the week at 2,103.84. The month closed up 1.97%, with better-than-expected earnings again supporting the market.  The July gain accounts for almost all of the year-to-date 2.18% gain.  The market remains 1.27% away from its closing high, with the one-year return up 8.97% (11.21% with dividends).  Breadth returned to a positive side, as did earnings. 

For the week, 353 issues gained, compared with the prior week’s 116 issues, and 352 the week before that.  There were 146 decliners for the week, down from the previous week’s 386 and 149 from the week before that.  Six issues gained 10% or more (four did the prior week), with another 43 issues up at least 5% (four the previous week).  Two issues fell at least 10% (16 did so the week before), with six additional issues falling at least 5% (63 did the week before). 

Nine of 10 sectors posted gains for the week, which was almost a complete reversal of the week before, when all 10 declined.  Utilities did the best, up 3.87%, but it remained off 7.05% year-to-date.  Energy did the worst, off 0.43%, as it declined 2.60% on Friday, after both Exxon Mobil and Chevron reported disappointing earnings. Health care added 2.27% to stand 11.71% higher year-to-date.  Trading volume continued to increase, and the week increased 8% over the previous week’s double-digit gain of 12%, and it was 13% above the one-year average.  Most of the trading was again centered on earnings, with the following week expected to stay the course, as 90 issues are scheduled to report. 

Friday’s employment should also help trading.  Measurable volatility (the high-over-low price variance) remained high at 2.46%, even as it declined from last week’s 2.68% and the prior week’s 12.35%. The VIX remained low, as it declined to 12.12 from last week’s 13.74; it had reached 16.27 on Monday.  Interest rates fell, as the U.S. 10-year Treasury yield closed at 2.18%, down from last week’s 2.26%, and 2.35% the week before that (year-end 2014 was at 2.17%). 

Oil stayed low and closed lower at USD 46.77, from last week’s USD 48.07 and USD 50.78 the week before that, while gold traded slightly lower  and closed at USD 1,095.00, down from last week’s 1,099.20.  The euro closed down at 1.0984 from the prior week’s 1.0985 (1.0831 the week before that).  The pound was at 1.5622, down from the previous week’s 1.5510 (1.55606 from the week before that), and the yen (quoted in yen-to-U.S. dollar, so higher is weaker) was at 123.89, which was down from the prior week’s 123.13 (compared to 124.08 the week before that).

S&P Dow Jones Indices added S&P MidCap 400 jewelry and watch retailer Signet Jewelers Limited (SIG) to the S&P 500, removing DIRECTV (DTV), which was acquired by AT&T (T). Next week will continue to center on earnings, as the releases start to decline in number.  There are 90 issues, representing 12.7% of the market value, scheduled to report next week.  Highlights will include Monday’s after-the-close American International Group (AIG) and Allstate (ALL), and Tuesday’s Aetna (AET), Coach (COH), and Kellogg (K), with First Solar (FSLR) and Walt Disney (DIS) after the close.  Wednesday will bring Time Warner (TWX), with Thursday’s Monster Beverage (MNST) after the close.  The economic highlight will be Friday’s employment report.

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